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Dunlop India Ltd. and India Tyre and Rubber Co. (India) Pvt. Ltd. Vs. Union of India (Uoi) and anr. - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtChennai High Court
Decided On
Case NumberWrit Petition Nos. 1031, 1032, 1063 and 1103 of 1978
Judge
Reported in1981LC537D(Madras)
AppellantDunlop India Ltd. and India Tyre and Rubber Co. (India) Pvt. Ltd.
RespondentUnion of India (Uoi) and anr.
DispositionPetition allowed
Cases ReferredCibatul Ltd. v. Union of India
Excerpt:
.....goods shall be the manufacturing cost & manufacturing profit and cannot be loaded with post manufacturing expenses. - - the billing price takes in besides the manufacturing cost and manufacturing profit, other post manufacturing expenses like selling and administrative expenses, salaries, wages paid to selling staff, advertisement expenses, godown charges, freight and distribution expenses. the respondents have not disputed the case of the petitioner that its products are sold through a large number of sales depots which are situated in different parts of the country at a uniform price called the billing price and that the said price takes in besides the manufacturing cost and manufacturing profit, other post manufacturing expenses like selling and administrative expenses,..........country. the billing price takes in besides the manufacturing cost and manufacturing profit, other post manufacturing expenses like selling and administrative expenses, salaries, wages paid to selling staff, advertisement expenses, godown charges, freight and distribution expenses.3. the question that arises for determination in these writ petitions relate to the fixation of the value of the products marketed by the petitioner for levy of excise duty. section 3 of the central excises and salt act, 1944 (hereinafter called the act) provides that they shall be levied and collected in such manner as may be prescribed for duties of excise on all excisable goods other than salt which are produced or manufactured in india at the rates set forth in the first schedule, the first schedule.....
Judgment:
ORDER

Padmanabhan, J.

1. These Writ Petitions coming on for hearing on 29th day of October 1980 and Monday 3rd day of November, 1980 and on this day upon perusing the petitions and the respective affidavit filed in support thereof the order of the High Court, dated 29.3.1978 and 3.4.1878 and made herein, and the Counter affidavits filed herein and the records relating to the order in O.C. No. 382/78, O.C. No. 311/78, O.C. No. 383/78, O.C. No. 385/78, dated 23.3. 1978 and 27.3.1978 on the file of 2nd respondent herein and comprised in the return of the said respondent to the Writs made by the High Court, and upon hearing the arguments of Mr. V.P. Raman for Mr. V. Manivannan, advocate for the petitioner in all the petitions and of Mr. K.N. Balasubramanyan, Additional Central Govt. Standing Counsel on behalf of the respondent in all the petitions the Court made the following order:

2. M/s. Dunlop India Limited, the petitioner herein, is a company incorporated under the Companies Act with its registered office at Calcutta. The petitioners factory is situated in Madras. It is engaged in the manufacture and sale of automobile tyres and other rubber products. The pattern under which the petitioner markets its products is as follows. There is no sale of its products at the factory gate. There are about 2500 sales depots spread through out the length of India. All the products are transferred to the various depots. The goods are sold at these depots at a price called the billing price which is uniform throughout the country. The billing price takes in besides the manufacturing cost and manufacturing profit, other post manufacturing expenses like selling and administrative expenses, salaries, wages paid to selling staff, advertisement expenses, godown charges, freight and distribution expenses.

3. The question that arises for determination in these writ petitions relate to the fixation of the value of the products marketed by the petitioner for levy of excise duty. Section 3 of the Central Excises and Salt Act, 1944 (hereinafter called the Act) provides that they shall be levied and collected in such manner as may be prescribed for duties of excise on all excisable goods other than salt which are produced or manufactured in India at the rates set forth in the first schedule, The first schedule classifies the goods and fixes the rate of duty. Tariff item No. 16 deals with tyres and tubes. Section 4 of the Act provides how the value of an article chargeable with duty at a rate depending on its value shall be determined for the purpose of assessment of excise duty. The petitioner's case is that excise duty is a tax on the production or manufacture of the goods and that the rule is that the value of the goods for the purpose of assessment to excise duty can only include the manufacturing cost and the manufacturing profit and the said price cannot be loaded with post manufacturing expenses such as selling and administrative expenses, etc. The billing at which the petitioner sells its product throughout the country does not represent only the manufacturing cost and the manufacturing profit, but also includes various items of post manufacturing expenses as stated above. Consequently, according to the petitioner, it is the bounded duty of the respondents to determine the price of the petitioner's product for the purpose of levy of excise duly by taking into account the manufacturing cost and reasonable manufacturing profit. Since the petitioner is selling its product through its 2500 sales depots at a uniform price it will not be possible for it to separately calculate the post manufacturing expenses in respect of the goods sold from each depot. Consequently, the petitioner claimed that the pries of its products for the purpose of levy of excise duty should be arrived at after deducting a certain percentage towards post manufacturing expenses from its billing price. In this connection, the petitioner relies upon two decisions of the Supreme Court in A.K. Roy v. Voltas Limited : 1973ECR60(SC) and Atic Industries v. Asstt. Collector, Central Excise A.I.R. 1975 S.C. 930.

4. The case of the respondents is that Section 4 of the Act has been amended with effect from 1.10.1975, According to the amended Section 4, the normal price at which a manufacturer sells his products should be taken to be the value for the purposes of levy of excise duty. Section 4(1) (a) of the Act explains 'normal price' as the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade. Therefore, the respondents contend that the billing price at which the petitioner sells its products from the various depots determines the normal price for the purpose of levy of excise duty. The respondents, however, concede that from the billing price the actual trade discount allowed by the petitioner and the cost of transportation could be excluded. In this view, the Asstt. Collector of Central Excise passed an order on 23.1.1978. In the said order the Asstt. Collector took the view that Section 4 as it stood prior to 1975 had been amended and that the normal price under the amended section and the wholesale cash price under the old section were not synonymous. The Asstt. Collector further held that since admittedly the petitioner was not effecting a sale of its products, at factory gate: Section 4(4) of the Act will not be applicable. Further, the Asstt. Collector held that Section 42)of the Act was attracted to the petitioner's case since the price of the excisable goods was not ascertainable at the place of removal and that consequently the billing price should be taken to be the criterion for determining the excisable value. Accordingly, the Asstt. Collector held that the assessable value of all the products manufactured by the petitioner will be on the basis of its total sale price or billing price less the actual cost of transportation and element of excise duty contained therein.

The question that arises for determination is as to the basis on which the assessable value for the purpose of excise duty can be arrived at. It is settled law that excise is a tax on production or manufacture of goods. Consequently, the value of the goods for the purpose of excise duty must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post manufacturing cost or profit arising from post manufacturing operation. Further it is one of the basic concepts of levy of excise duty that it should be levied on the basis of the sale price at the factory gate.

5. In A.K. Roy V. Voltas Ltd. : 1973ECR60(SC) Cen-Cus 1975 P-104C Mathew, J. has observed as follows: 'Excise is a tax on the production and manufacture of goods. Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profits and that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post manufacturing operation, namely selling profit.'

6. In Atic Industries v. Asst. Collector : 1978(2)ELT444(SC) Cen-Cus 1975 p-49C Bhagwati, J. has observed as follows : 'In the first place, as pointed out by Mathew, J. in Voltas case excise is a tax on the production and manufacture of goods. Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profit and that the real value can include only the manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post manufacturing cost and the profit arising from post manufacturing operation, namely, selling profit.' The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post-manufacturing cost or profit arising from post-manufacturing operation. The price charged by the manufacturer for the sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. If the price charged by the wholesale dealer who purchases the goods from the manufacturer and sells them in wholesale to another dealer were taken as the value of the goods, it would include not only the manufacturing cost and the manufacturing profit of the manufacturer but also the wholesale dealer's selling cost and selling profit and that would be wholly incompatible with the nature of excise. It may be noted that wholesale market in a particular type of goods may be in a several tiers and the goods may reach the consumer after the series of wholesale transactions. In fact the more common and less expensive the goods, there would be greater possibility of more than one tier of wholesale transactions. For instance, in a textile trade, a manufacturer may sell his entire products to a single wholesale dealer and the latter may in his turn sell the goods purchased by him from the manufacturer to different wholesale dealers at State level, and they may in their turn sell the goods to wholesale dealers at the district level and from the wholesale dealers at the district level the goods may pass by sale to wholesale dealers at the city level and then, ultimately from the wholesale dealers at city level, the goods may reach the consumers. The only relevant price for assessment of value of the goods for the purpose of excise in such a case would be the wholesale cash price which the manufacturer receives from sale to the first wholesale dealer, that is, when the goods first enter the steam of trade. Once the goods have entered the steam of trade and are on their onward journey to the consumer, whether along a short or a long course depending on the nature of the goods and the conditions of the trade, excise is not concerned with what happens subsequently to the goods. It is the first immediate contract between the manufacturer and the trade that is made decisive for determining the wholesale cash price which is to be the measure of the value of the goods for the purpose of excise. The second and subsequent price, even though on wholesale basis, is not material. If excise were levied on the basis of second subsequent wholesele price, it would load the price with a post manufacturing element, namely, selling profit of the wholesale dealer. That would be plainly contrary to the true nature of excise as explained in the Voltas' case. Secondly this would also violate the concept of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise.'

7. From the above decisions it is clear that for the purpose of levy of excise duty the value of the petitioner's product has to be determined only by taking into account the manufacturing cost and the manufacturing profit. The respondents have not disputed the case of the petitioner that its products are sold through a large number of sales depots which are situated in different parts of the country at a uniform price called the billing price and that the said price takes in besides the manufacturing cost and manufacturing profit, other post manufacturing expenses like selling and administrative expenses, salaries, wages paid to selling staff, advertisement expenses, godown charges, freight and distribution expenses. It cannot therefore be denied that the so-called billing price at which the petitioner sells its products through its different depots includes not only manufacturing cost and manufacturing profit, but various other items of expenditure involving post manufacturing operations. Such post manufacturing expenses will have to be excluded from the billing price to determine the excisable value of the petitioner's profits. The respondents do not challenge the fact that this would be the position if the situation is tested in the light of the principles laid down in A. K. Roy v. Voltas Limited : 1973ECR60(SC) and Atic Industries v. Assistant Collector, Central Excise : 1978(2)ELT444(SC) .

8. However, it is argued on behalf of the respondents that the amended Section 4 of the Act has altered the situation and with the amendment of Section 4 of the Act, the principles laid down by the Supreme Court in A.K. Roy v. Voltas Limited : 1973ECR60(SC) and in Atic Industries v. Asstt. Collector : 1978(2)ELT444(SC) have ceased to be of any significance.

9. The amended Section 4(2) of the Act provides that where in relation to any excisable goods the price thereof for delivery at the place of removal, is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the said price should be taken to be the criterion after excluding the cost of transporation from the place of removal to the place of delivery. It is therefore contended that in the light of the amended Section 4(2) of the Act apart from the cost of transportation, no other expenses could be excluded from the price at which the manufacturer sells his product from the place of removal.

10. In Tata Engineering and Locomotive Co. Ltd. v. S.N. Guha Thakurta Cen-Cus 1977 P-47D : 1977E.L.T. J14 a similar argument was advanced before the Patna High Court and the Patna High Court has observed as follows : 'It was not disputed that under the amended Section 4 (1) (a) a wholesale cash price would be the normal price. To attract Section 4 (1) (a) what was required was to determine the normal price, which would be the price at which it was ordinarily sold to buyers in the course of wholesale trade.' The Patna High Court found that there was no force in the contention that Section 4(2) of the Act provided for the only deduction that had to be made in assessing the value of the goods and that other post-manufacturing charges could be included.

11. An identical question in relation to the Madras Rubber Factory came up for consideration before the Kerala High Court in Madras Rubber Factory Limited v. Asstt. Collector of Central Excise, Kottayam Cen-Cus 1977 P-337D (see also corrigendum at P-437D) 1979 ELT J397. It was contended on behalf of the Central Excise Authorities before the Kerala High Court that after the amendment of Section 4 it was permissible for the department to levy a duty on the normal price at which the manufacturer sold the goods in cases where it was not possible to ascertain the price at which it was sold at the factory gate. It was also contended on the basis of Section 4 (2) of the Act that for the computation of value of the goods under Section 4 provision was made for deduction of the cost of transportation alone and no other expenses. The learned Judges of the Kerala High Court have held that the authorities were wrong in insisting on the post manufacturing expenses and the post manufacturing profits being included in the reckoning for determination of the excise duty.

12. In Indo-National Limited, Nellore v. Union of India 1979 ELT. J. 334 the scope of the amended Section 4 of the Act came up for consideration in a batch of writ petitions before the Andhra Pradesh High Court. The learned Judges observed as follow:

As noted already, excise duty payable under the charging Section 3, being a tax on manufacture, it can only be on manufacturing cost and manufacturing profit and the assessable value cannot be loaded to any extent by any other cost or profit which is unrelated to manufacturer. In other words, to arrive at the real value of the goods for the purpose of levy of duty, the price of the goods must be free from being loaded with post-manufacturing costs and expenses. If the price charged by the manufacturer or producer to his first buyer includes post manufacturing costs or expenses which are unrelated to the manufacture or production, the price must be relieved of such loading arising out of the inclusion of post-manufacturing expenses and cost for the purpose of determining the assessable value. For the purposes of determining the assessable value under Section 4 of the Act, as it stood prior to 1.10.1975, the wholesale cash price was to be ascertained. After the amendment from 1.10.1975, the 'normal price' is to be ascertained. Section 3 of the Act authorising the levy of excise duty on the manufacture and production of goods, it may be noted, is left in tact and has not been amended by the Amending Act of 1973. What is more, the concept of 'factory gate sale' which was the basis for determination of the assessable value under Section 4 of the Act, as it stood prior to the amendment, is re-affirmed in the amended section and in the definition of 'normal price' contained in the amended Section 4, the element of sale of goods for delivery at the time and place of the removal has been preserved. The basis of excise duty, therefore, continues to be the manufacturing cost and manufacturing profit and the amendment of Section 4 does not and cannot in any way alter the basis of the levy of excise duty contained in Section 3 of the Act remaining the same untouched and unamended even after the substitution of the new Section 4. If the normal price were to be construed as to take within its ambit anything except the manufacturing cost and manufacturing profit, the impost ceases to be excise duty and the rational nexus between the duty and the person upon whom it is imposed ceases to exist, as it amounts 10 tax on sale, which under entry 54 of list II of Schedule VII to the Constitution, exclusively falls within the domain of the State Legislature and Parliament has no legislative competence to make any law with regard to it. It therefore follows that under the new Section 4 of the Act it is not permissible to include in the assessable value any element of post-manufacturing costs or profits attributable to post manufacturing operations.

13. The Bombay High Court had occasion to deal with this question in Union Carbide (India) Ltd. v. Union of India and Ors. 1979 ELT J. 633. The Union Carbide (India) Limited is a public limited company which manufacture polythene granules in its factory at Chembur, Bombay. Its products are sold all over India at uniform sale prices at all points of sales. There was also no factory gate sale and the uniform price at which the products were sold from the different points took in post manufacturing expenses. The learned Judges of the Bombay High Court observed as follow:

The real value of the goods under the old Section 4 or normal price under new the Section 4, must be ascertained by inclusion only of the manufacturing cost and manufacturing profit and excludes post manufacturing cost and profit arising from post manufacturing operation, namely, selling profit. The is the ratio laid down by not less than two decisions of the Supreme Court, namely in A.K. Roy v. Voltas Limited 1977 ELT J. 177 and in Atic Industries V. Asstt. Collector, Central Excise 1978 ELT J. 444 and has been followed by the Division Bench of this Hon'ble Court in India Tbacco Co. Ltd. v. Union of India 1979 ELT J. 476 and in Century Spinning and . v. Union of India 1979 ELT J. 334, the Madras High Court in Nagpur Petro Chemical Ltd. v. Asstt. Collector 1979 ELT J. 117, the Kerala High Court in Madras Rubber Factory v. Asstt. Collector 1979 ELT J. 397, the Delhi High Court in Madras Rubber Factory Ltd. v. Union of India 1979 ELT J. 173, the Patna High Court in Tata Engineering and Locomotive Co. Ltd. v. S.N. Guba Thankurta 1977 ELT J. 14 and the Gujarat High Court in Cibatul Ltd. v. Union of India 1979 ELT J. 407.

14. The following principles emerge from the above decision. As already stated,' excise duty is a levy on production or manufacture. The value of the goods for the purpose of levy of excise duty can therefore take in only the manufacturing cost and manufacturing profit. The value of the determination of excise duty cannot be loaded with post manufacturing expenses or post manufacturing profits. Normally, the value of the goods for levy of excise duty has to be determined with reference to the price at which the goods are sold at the factory gate. The Section 4(1)(a) as it stood prior to the amendment stated that the value of the goods with reference to the levy of excise duty shall be the wholesale cash price for which the article is sold by the manufacturer. The amended section provides that the value of excisable goods shall be the normal price at which the goods are ordinarily sold by the assessee to a buyer in the course of a whole-sale trade. However, the amended section has not done away with the basic principle that excise duty is a levy on on the production or manufacture of goods. Consequently, notwithstanding the amendment of Section 4 of the Act. the value of the goods for the determination of excise duty can only take in manufacturing cost and manufacturing profit and cannot be loaded with post manufacturing expenses as laid down by the Supreme Court in Voltas case and Atic Industries case. The fact that Section 4 (2) of the Act after amendment states that transportation charges have to be excluded in the determination of the value for the purpose of levy of excise duty, does not mean that every other post manufacturing expenses can be included in arriving at the value of goods for the levy of excise duty.' I therefore respectfully follow the decision already referred to by me and hold that the Asstt. Collector of Central Excise has erred in holding that the assessable value of all the products manufactured by the petitioner will be on the basis of the total sale price or the billing price less the actual cost of transportation and element of excise duly contained therein. 'For the purposes of arriving at the assessable value of all the products manufactured by the petitioner for the purpose of levy of excise duty all the post manufacturing expenses will have to be excluded.' The impugned orders are therefore quashed and the respondents are directed to determine the excise duty after excluding the post manufacturing expenses. The writ petitions are allowed but under the circumstances without costs.


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